Tuesday, July 1, 2008

But the disaster is depressingly man-made. And this neighborhood reveals a deeply troubling dimension of it, one that will echo long past the recovery everyone hopes will soon come: for black America, the "mortgage meltdown" looks less like a market hiccup than a massive strip mining of hard-won wealth, a devastating loss that will betray the promise of class mobility for tens of thousands of black families.

And get this:

First-time homebuyers have originated less than a tenth of all subprime loans since 1998, according to a 2007 Center for Responsible Lending analysis. As recently as 2006, just over half of all subprime loans were refinances of existing home loans. The expected foreclosure toll from these loans will outpace the ownership gains by nearly a million families, the center estimates.

That's particularly true in established black neighborhoods like Westwood, where banks and brokers targeted vulnerable longtime homeowners and lured them into needless and rapidly recurring mortgages they clearly couldn't afford and from which they never stood to gain. More than half of all refinance loans made to African-Americans in 2006 were subprime, according to an analysis by the advocacy group ACORN. That's nearly twice the rate among white borrowers. Among low-income black borrowers, 62 percent of refinance loans were subprime, more than twice the rate among low-income whites.

And it gets worse:

It's a loss black America can scarcely afford, because black wealth has long been enormously dependent on home equity. In 1967, the year before the Mitchells bought their house, homes accounted for 67 percent of black wealth, compared with 40 percent of white wealth. The disparity has only grown, pushed by the turn-of-the-millennium stock market boom. Without counting home equity, black net worth in 2004 was just 1 percent of that for whites, according to research by New York University economics professor Edward Wolff.

Now with the current tragic situation, the all-important home base for many families, people who lived in these homes for years, is being taken from them by predatory lenders. One might argue that this is not racist, that they are just victims of a housing/lending crisis that hit all lower-income people. But a look at the history of home ownership and lending in America tells us that's letting them off the hook.

The nation's first homeownership boom came after World War II, when the government used the Federal Housing Administration's (FHA) mortgage insurance to lower the cost of buying. Banks extended credit lines to middle-class borrowers in ways that encouraged long-term ownership -- thirty-year mortgages covering 80 percent to 90 percent of the buyer's costs with interest rates of about 6 percent. By 1960, the American homeownership rate had shot up from less than half before the war to nearly 65 percent, where it remained until the modern housing market took off.

Black communities were excluded from this rising tide. The FHA's underwriting manual guaranteed insurance for segregated white neighborhoods only, until a series of court cases between 1948 and 1953 struck down the rule. Even then, the policy changed in word alone: 98 percent of the 10 million homes federal money had backed by 1965 went to whites, and banks' redlining of black neighborhoods went on for years thereafter. As a result, the black-white disparity in homeownership hasn't dropped below 20 percentage points since 1940; it was at 25 percentage points in 2007.

Read more to see exactly how predatory, and I mean predatory, those lenders became after lifting the usury laws so they could open up their shady business to everyone and even force loans on people who didn't understand what they were doing.